Consumers Are Buying Bigger, More Expensive Vehicles

Consumers are spending again, at least on cars. At dealerships across the country, big SUVs, luxury vehicles, and fully loaded smaller cars are flying off the lots. The trend toward expensive vehicles and models laden with pricey technology has been gathering steam, even in an otherwise weak economy.

Between June 2009 and September 2010, the average price paid per vehicle -- the so-called average transaction price -- has risen from about $23,500 to $27,229, according to CNW Marketing Research of Bandon, Oregon. In October, higher-end vehicles generally trounced their cheaper rivals in their percentages of year-over-year growth.

What’s Really Happening?

According to CNW figures, the average transaction price for vehicles has been climbing every month between January and September, ending up $1,400 higher than it was even at the start of the year. In another sign of our potential headlong flight into excess, sales of luxury cars, pickups and SUVs were up sharply in October. The improved pickups sales are also a sign that small businesses are venturing back into the market for work trucks, say analysts.

Cadillac sales rose 15 percent nationwide in October compared to a year earlier, the company said, and General Motors has had to ramp up production to meet demand. "Our biggest problem is that we can't get enough of them," said Otto Belovich, owner of Cherry Capital Subaru and Cadillac in Traverse City, Michigan.

Nationwide, Acura sales were up 24 percent in October, compared to the year-earlier figure. Porsche was up 28 percent and Lexus 46 percent, according to figures from AutoData Corp. and the AIADA. Audi, a perennial underperformer in the US market, was up 22 percent.

Affluent customers have headed back into the new car market before the middle class, says Paul Taylor, chief economist for the National Automobile Dealers Association. In doing so, they have skewed sales toward more expensive cars, trucks and SUVs.

Their return is an encouraging sign for the industry, said Cody Lusk, president of the American International Automobile Dealers Association (AIADA), a trade group representing dealers selling non-US brands. “We finally do have people with money getting off the sidelines and getting back into the market,” he said.

The luxury market’s re-awakening may be due to a change in the mentality of better-off car buyers and their improved financial situation. “For a while, the people with disposable income decided that, for whatever reason, they were just going to sit this out," Lusk said. “There was no reason to make a purchase. But now they are saying, ‘Enough of this. I am going to finally get the car that I’ve been wanting all along.’”

Other factors are playing a role in the luxury segment’s revival. Lusk credits the incentives that some luxury brands have been offering. “In other cases, it's a new product that they have rolled out at the right sweet spot."

A Truck Comeback?

Taken together, pickups and SUVs left passenger cars in the dust last month, accounting for 54 percent of the market and increasing a long-standing lead, according to J.D Power and Associates. Conventional luxury SUVs were up 15.3 percent, Taylor said. In a replay of an old game plan, General Motors scored big with its sales of SUVs and crossovers – which rose 36 percent in October, according to the Associated Press.

Low gas prices have certainly given SUVs a lift, offering long-standing fans of the vehicles an extra incentive to buy one. Some consumers may even worry that their favorite model may one day disappear from an automaker's lineup. "Consumers may be concerned that there may be less choice in the SUV market in coming years," Taylor said.

One sign of the concern: The average price for SUVs one to five years old has soared at dealer auctions since early 2009, climbing from about $13,000 to $22,000, according to AuctionNet, a data service for car dealerships.

Technology Trumps All

Consumers in all segments are showing a greater interest in expensive new technological features such as navigation, parking aids, and high-end audio, too. The options can easily boost the price of a new vehicle a few thousand dollars or more. "We are a gadget-embracing consumer society,” Lusk said. "You're also seeing that at the lowest levels of the market.”

Even his ever-practical Subaru customers are shopping for high-tech features these days, Belovich said. So are used-car buyers. In fact, it’s often easier to sell two-year-old, fully loaded vehicle than a base version of the new model. Used Cadillac SRXs with navigation don't linger on his used car lot for very long, he said.

What Happened To Cutting Back?

Meanwhile, sales for Smart and Mini, arguably two pioneers of the downsizing movement, were both down last month. While the Mini was down less than 2 percent, sales of the Smart Fortwo fell 60 percent, according to AutoData Corp. and the AIADA.

And the green car movement? Sales of the Prius, the standard-bearer of the green car movement, were down 13 percent compared to a year ago.

But Where Are The Middle Class?

Economist Taylor said the interest in more expensive vehicles correlates closely with a rising stock market. When relatively well-off customers see their net worth rise, they are more likely to buy a vehicle. “Stocks owned outside of retirement programs are important to luxury car buyers," he said.

Middle-class customers don't react to a rising market in the same way, he said. Most of their net worth is tied up in their homes, and housing prices have shown little or no appreciation after steep declines. As a result, many potential car buyers have stayed away from the market.

The U.S. auto market isn’t out of the woods yet. And despite the boom in sales of expensive vehicles, the numbers don’t necessarily suggest that consumers are going back to their old gas-guzzling ways, according to Lusk. The trend will be clearer when middle-class customers stop sitting on the sidelines and re-enter the market.